Businesses warned to make sure they know consequences of offering deals

Jaswant Minhas, owner of Indian restaurant chain Shiraz, says offering a deal is a good option for new businesses but ...

Jaswant Minhas, owner of Indian restaurant chain Shiraz, says offering a deal is a good option for new businesses but can be a financial blow.

 Business owners are being asked: What price do you put on exposure?

It was reported on Thursday that one Auckland pizzeria's GrabOne offer had gone sour for customers who tried to redeem their vouchers. They said they were shouted at when they tried to claim the deal.

That has prompted experts to warn that businesses need to fully understand the financial implications of running a potentially high-profile online deal.

The deal websites take a cut of the price of any vouchers sold. There are a number of them in the market, including GrabOne, TreatMe and Groupon.

Jaswant Singh Minhas, the operator of the Shiraz chain of Indian restaurants, said offering a deal usually meant taking a loss.

READ MORE: GrabOne vouchers fire up Auckland Pizzeria manager

"GrabOne takes 20 per cent plus GST but a credit card processing fee, and then what you offer has to be at a discount of 40 per cent. I did it a number of times but found out it was a losing game."

He said he might usually make about $6 on a $20 main. But if he offered a GrabOne deal and had to sell it for $10 instead, then paid $2, plus GST and processing fee to the site, and his own GST on the sale, he would end up losing money.

Minhas said it worked well for a new business starting out, which wanted to quickly reach a lot of potential customers, and build its database.

But once a business was already established, the vouchers were often only picked up by people who would visit the restaurant anyway, or people looking for a bargain who would not come back and pay the full price in future.

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He said he also often had problems with people coming in a long time after the vouchers had expired, getting angry and leaving bad reviews when they could not be honoured.

His accountant, Jeremy Tauri of Plus Chartered Accountants, said it was not an isolated problem.

"It's a great introduction for a new business but at the end of the day sometimes it doesn't make a lot of financial sense."

He said he would only recommend it in cases where there was an opportunity to upsell customers who came in with a voucher, or where a business had been able to get a supply of stock at a particularly low price, to make the deal pay off. "If it gets to the point where you're doing it all the time and competing on price, that can be not a very good option."

University of Auckland marketing lecturer Bodo Lang agreed it was something that had to be carefully navigated.

"Small business owners are often not fully aware of the financial consequences of their alliances with voucher providers. Unfortunately, they then treat users of vouchers as second-class customers," he said.

"This results in a lose-lose-lose. The customer feels that they are being treated unfairly, the business operator has to deal with complaints and rebuild their online reputation and the voucher provider may lose future customers because of past negative service experiences.

"The lesson for business owners is simple: Only sign up to voucher providers if you fully understand the financial implications. Treat customers who use vouchers as well as you would treat other customers. After all, these customers may become long-term, profitable customers to your business."

Tim Glatt, NZME Head of Sales eCommerce said GrabOne has been extremely successful for a huge number of clients, particularly in creating awareness and building business.

“We differ from other advertising channels in that we don’t charge any upfront costs. In addition to this our teams work with clients to ensure our model works within their cost structure to ensure an influx of new customers is a good thing financially for them. GrabOne allows businesses to respond quickly to an opportunity and get the word out to over a significant proportion of the population. Of course when someone uses their voucher it is a great chance to upsell and inform the customer about your business and what else you have on offer with the aim of converting them to being a regular who becomes loyal to your business.”

 - Stuff

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